Central bankers under the spotlight

The next two days are crucial for investors' hoping for central bank action in the wake of market anxiety over Europe's twin banking and debt crises and a slowdown in the American economy.

Starting on Wednesday, the ECB will announce its interest rate decision and Mario Draghi will hold his regular press conference afterwards. While Fed chairman, Ben Bernanke will testify before Congress the following day.

"Today the focus is on (European Central Bank President Mario) Draghi, tomorrow it's Bernanke, and what they might say," said Hiroki Shimazu, bond strategist at SMBC Nikko Securities.

"I want to see how Bernanke can coordinate all the different hints that are emerging from different Fed officials, about the outlook for more easing," he added.

What will they say?

Forex Pros Cam Hui says the ECB could reduce interest rates in the face of economic weakness in the eurozone, but don't expect too much more.

However, "If Draghi were to reverse course from last week and announce some extraordinary measure like another round of LTRO, it would not only erode the ECB's credibility, but could paradoxically have a negative effect on the markets as it asks, "What looming disaster does the ECB know about that we aren't aware of?"

Meantime, seasoned Fed watcher Tim Duy argues that the current direction of US data, the pathetic state of Europe, and the increasing slowdown across the rest of the global economy all point toward additional action by the Federal Reserve.

"Assuming this continues, it is an issue of timing and tools. My baseline is steady policy at the June meeting (depending, of course, on the usual financial turmoil disclaimer), with a possibility of an extension of Operation Twist. The latter option is something of a tough sell for me; it is cheap, but will prove to be ineffective."

"If the Fed needs to move, they need to reverse course back into quantitative easing. They need time to build internal support for such a move, which argues for action later in the summer or early fall, much as we have seen in the past two years. I just don't think they have enough to shift policy at this juncture."

Graham Summers, however, thinks it's odd to hear rumors of more monetary easing "when every major Central Bank has in fact been clearly stating NO new stimulus is coming any time soon."

According to Summers, the reality is that central banks are all realizing that their interventions so far (QE in the US and LTRO in the EU) have failed to solve the global banking crisis. Thus: "the consequences of their interventions (namely inflation) are now outweighing the benefits (heck Bernanke was admitting this as far back as May 2011… and now even uber-dove New York Fed President Bill Dudley is admitting it)."